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Judge Rakoff Sounds Off on Law Firm Billing

The invisible hand of the free market hasn’t been able to exert much control over law firm billing rates, U.S. District Judge Jed S. Rakoff said Monday night at a Cardozo School of Law panel discussion about the high cost of the legal system.

The judge cited data from a 2016 Cardozo Law Review article, “The Cost of Rules, the Rule of Costs,”which reported average hourly rates for partners shot up from $122 in 1985 to$532 in 2012 (average associates rates grew from $79 to $370 in the same time period). It drew the average rate data from a 1986 Duke Law Journal piece and a 2013 ABA Journal articlethat cited a Corporate Counsel analysis of $9.5 billion worth of invoices submitted by 4,800 U.S. law firms to 83 corporate clients from 2008 to 2012. The article suggests the rates for big firms in major cities are even higher.

“Why isn’t the free market operating?” asked Rakoff. The answer, he said, lies in the fact that the legal profession operates much like a guild, with “substantial barriers to entry,” not least of which is the cost of a legal education.

Rakoff was joined on the panel by fellow Southern District of New York Judges Richard M. Berman, John G. Koeltl, and Loretta A. Preska. Their discussion was moderated by Chief Judge Robert A. Katzmann of the U.S. Court of Appeals for the 2nd Circuit. The judges also covered a wide range of other topics including the pros and cons of class actions, the rise of arbitration clauses, and the cost of discovery.

Ultimately, all the judges agreed that the bench and bar need to come together to address the high cost of justice in the United States before solutions are imposed by Congress.